No one will deny that China is the fastest growing economy in the context of GDP and income per capita growth rates, having the largest population and consumer markets in the world.
After having rapid growth for over three decades, the GDP of China economy has maintained an average annual growth rate of around 10%, albeit some fluctuations due to several external factors such as the 1990 Persian Gulf War, the 1997 Asian Financial Crisis, the 2000 Dot-Com Bubble and the recent Sub-prime Crisis.
Here is the chronology of the evolution of China’s economy during the past three decades:
1978
Cessation of the “Close-Door-Policy”
Under the leadership of Deng Xiaoping, the reformation of China’s economy has begun.
Anhui’s land and fix farm output quota reforms
The establishment of Baogang Steel.
First publication of Deng’s “Practice is the sole criterion for testing truth”
1979
Approval of the "Special Economic Zones" in Shenzhen, Zhuhai, Shantou and Xiamen.
A foreign company, Coca cola, was approved to market its product.
Deng became the first Chinese leader to visit the United States.
1980
First land-lease agreement was signed for developing Shenzhen
Reestablishment of China People Insurance
1981
Trading in treasury bonds was resumed.
1982
Penetration of foreign companies and foreign cultures to China has begun
1983
Company stocks and corporate bonds emerged in Shanghai and a few other cities
Deng’s speech on “Permitting some people to become prosperous before others”
1984
Introduction of the “Planned commodity economy”
The opening of 14 coastal cities to foreign investors
1985
Introduction of the “Double-track price system / Two-tier price system”
1986
Introduction of the reformation of the "Economic responsibility system in the enterprise owned by the whole people"
The rising of township and village enterprises
1987
The rising of entrepreneurs
Introduction of personal income tax
1988
Introduction of the "Social, Science and Technology are the Core of Primary Productive Forces" policy
Abolishment of the “Two-tier price system”, inflation rate reached 19%
1989
Launching of “Project Hope”
Incident of Tiananmen Square
1990
The Shanghai Stock Exchange re-opened after 41 years.
Opening of the Shenzhen Stock Exchange
Deng proposed the development of Pudong, Shanghai
1991
Rising of the affluent in the coastal cities
1992
The southern tour of Deng Xiaoping was carried to reassert the reformation of China economic agenda.
The National People's Congress approved the construction of the Three Gorges Dam.
1993
The commissioning of the first highway project
Rectification of financial order by Zhu Rongji
1994
The reformation of the residential system
Inflation rate reached 24%, the highest since 1978
1995
The implementation of the “Science and Education Strengthens the Nation” policy
1996
Became the world largest steel producer
The listing of State-Owned Enterprises has begun
1997
The transfer of sovereignty over Hong Kong from UK to China
Deng Xiaoping passes away
The explode of the Asian Financial Crisis
1998
The establishment of Petrol China and Sinopec
Zhu Rongji and his team has persistently defended the value of Renminbi
Mild recovery of economy and property market post crisis.
1999
The proposal of the Great Western Development Strategy
The listing of Sina in U.S. Nasdaq
2000
The listing of the H-shares of China Telecom, China Unicom, Petrol China… in Hong Kong Stock Exchange.
The bursting of Dot-com bubbles
2001
The admission of China into the WTO
2002
Construction of the "West-East Gas Pipeline" begins
2003
Yang Liwei was successfully sent into space by rocket Shenzhou 5.
SARS outbreak
2004
Lenovo took over IBM’s PC division
More serious adjustment on macro-economy
2005
“Reform of the shareholder structure of listed companies” was proposed
2006
The commissioning of the Three Gorges Dam and the Qinghai-Tibet Railway
2007
The booming of stock market
2008
Sichuan earthquake
Beijing successfully hosts the 2008 Summer Olympics
Milk scandal
2009
Mass celebrations of the 60th National Day
2010
Shanghai world expo
During the early days of the transformation (pre 2000), China’s economics had greatly benefited from its cheap cost model, which include mass and cheap labour force, cheap land, cheap credit (or subsidies) and cheap energy. This cheap cost model had in turn led to the unbeatable pricing competitiveness of China export-orientated manufacturing in the global scene.
When all these trade surplus recycle, it had led to the surges of the foreign exchange reserved (currently the largest in the world), income per capital, inflation, etc. As the consequence, China is facing the pressure from its largest trade partner to appreciate its Renminbi, higher labour cost due to the raising wages, urbanization over years which leads to inflation especially in the coastal urban areas, etc. Besides that, with the introduction of the labour-friendly ‘Law of The PRC on Employment Contracts’, the competitiveness of these low cost model manufactures which produce lower value-added items are further eroded. These problems have intensified with the rising of the lower-income countries like India, Indonesia, South Africa, and Indochina.
Thus, in order to maintain its high single digit GDP growth, China needs to move forward to upgrade its manufacturing industry from labour intensive to capital and technology intensive, brand building, transforming the thinning margin of OEM manufacturers to high-ended integrated product development and supply chain solutions, besides exploring and developing its central / western zones.
While the theory above is ‘easy to say, hard to implement’ in near terms, most investor would start looking for the China service sectors, property and natural resources, which are believed to be the next growth engine of China’s economy.
Given that the value of Renminbi is expected to be gradually enhanced (over USD) further over the next few years, the flow of hot money into the Renminbi assets is expected to continue, with preference to China state-owned-enterprises, which have stronger insulation over policy’s risks.
Resource: http://www.klse-fundamental.com/
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